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O’Bannon v. NCAA: Practical Considerations for New Pay-for-Play Rules (Part Two)

Seth Traub

Seth Traub

As we discussed on the blog last month, Judge Wilken’s decision in O’Bannon v. National Collegiate Athletic Association, if upheld, will have a marked effect on collegiate athletics. As it stands, the NCAA is enjoined from setting a cap on athletic scholarships below the full cost of attendance for student-athletes and allows schools to compensate certain student-athletes for use of their names, images, and likenesses (“NILs”) via a trust that would distribute funds after the student-athlete ends his or her collegiate career. These issues present athletic departments with several new challenges. Although there are many moving parts, three main areas stand out for immediate consideration: (1) establishment of a trust for a student-athlete’s benefit; (ii) consideration of Title IX concerns; and (3) additions to the National Letter of Intent.

First, universities would have to address the establishment of a trust fund.  The concept itself is fairly simple—revenue would be set aside and placed into a trust for FBS football and Division I basketball players to access after their collegiate careers have ended.  The O’Bannon decision prohibits the NCAA from setting a payment cap at less than $5,000 (in 2014 dollars) per year.  Every institution will need to determine the mechanics of setting and managing a trust in light of applicable state law, including appointing trustees and fiduciary responsibilities to beneficiaries. And distribution of funds once careers end may have complicated tax implications that could require institutions to revisit issues related to whether student-athletes should be considered employees.

Second, Judge Wilken appears to not have considered Title IX when she ordered stipends and trust funds only for football and men’s basketball student-athletes.  To the extent the payments contemplated by the ruling are considered part of the financial aid offers made to male athletes, the payments would fall under the Title IX regulation relating to “substantial proportionality” – which requires the dollar amounts of financial aid to be paid in proportion to the ratio of male and female participation.  With the increase in financial aid available to male student-athletes because of the O’Bannon decision, proportional increases will need to be available to female student-athletes to comply with Title IX.

Finally, beginning with the class of 2016, the standard—albeit controversial in many respects—National Letter of Intent (“NLI”) will need to address the additional financial aid being provided to football and men’s basketball players. Because the O’Bannon ruling requires every player in a recruiting class to receive the same amount for their names, images and likeness, the NLI will need to be consistent across applicable sports for a given year.  When a student-athlete signs the NLI, they also sign an athletics financial aid agreement.  The amount and payment of the trust fund should be an additional document or part of the NLI that a student-athlete signs to ensure consistency and compliance should the Court’s ruling requiring the trust fund be upheld.

There is a number of opinions on what effect the O’Bannon ruling will have long-term, from those forecasting the death of the NCAA to those that see very little effect on amateur athletics.  While the continuing effects certainly remain to be seen, and now rest on the decision of the Ninth Circuit, it’s clear that the mechanics of implementing any new pay-for-play rules are going to need special attention over the coming months and years.

“This article was co-authored by Seth Traub and Dana Drew Shaw. If you would like more information, please contact Seth at straub@slk-law.com or Dana at dshaw@slk-law.com.”

One comment on “O’Bannon v. NCAA: Practical Considerations for New Pay-for-Play Rules (Part Two)

  1. […] of complex legal problems created by the injunction.” We outlined some of those problems in our last post.  The O’Bannon plaintiffs/appellees have 10 days to oppose the NCAA’s request, unless the […]

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